French Debt Comes Under Pressure As 10-Year Yield Tops 4.3%

France’s 10-year debt now yields more than 4.3%, an unprecedented level since the 2008 financial crisis. This increase does not automatically revalue all the State’s borrowings, however, it progressively weighs on their refinancing.

New French borrowings become more expensive

On September 9, the 10-year OAT yield hovered at 4.3069%, while debt interests explode. An OAT is a bond issued by the French State to finance its expenditures and repay matured securities. Its yield is equivalent to the compensation demanded by investors.

The French rate was still around 3.6% last June, then 3.90% a month before this new peak. During its early September auction, the Agence France Trésor had to offer a 4.23% yield compared to 3.90% in August and 3.73% in July, according to available statistics.

Many on-chain indicators help measure this tension :

• The 10-year French OAT gained 8.5 basis points to reach 4.3069% ;
• The 30-year French bond crossed 5%, with a yield of 5.04% ;
• The 10-year German Bund yielded 3.4183% ;
• The spread between French and German rates approached 90 basis points.

A basis point represents 0.01 percentage point. This 90-point spread thus means France must offer about 0.9 points of additional yield compared to Germany. Such a difference determines the risk premium demanded by investors.

The 4.3% rate does not apply to older bonds issued at a fixed rate. Its impact occurs if the State contracts new debt or replaces a matured bond. The bill gradually rises if yields remain high.

Bond markets face global pressure

The rise in rates is not only linked to France. Indeed, German, American, and British bonds also face a difficult period. If investors sell these securities, their price drops and their yield increases mechanically.

The rise in oil prices fuels fears of renewed inflation. It raises transportation and production costs. Under such conditions, central banks would keep their rates fairly high or proceed to further hikes.

States and companies also issue a large amount of debt. This abundant supply forces borrowers to offer more attractive compensation to find buyers. The German 10-year Bund yield has thus reached its highest level since 2011.

Thus, France is affected by an international trend. However, its spread with Germany reveals that investors do not react exclusively to the global context. They also demand a premium related to the French budgetary and political situation.

Debt burden reduces budgetary margins

The French government has lowered its growth forecast for this year from 0.7% to 0.5%. It also acknowledges that it will not reduce the public deficit to 5% of GDP as planned.

The debt burden could reach around 65 billion euros in 2026. This amount exceeds the initial projection by 4.5 billion and becomes the State’s largest expenditure item. A sustained increase in rates would further decrease available resources for education, defense, health, or the energy transition.

Kevin Thozet, a member of Carmignac’s investment committee, states: “France is particularly exposed to the rise in rates”. According to him, returning to a 3% GDP deficit by 2029 could require nearly 85 billion euros of adjustment compared to the current trajectory.

Such an estimate does not mean an immediate saving of 85 billion euros. It evaluates the gap between current public finances and the necessary trajectory to meet the European target.

France continues to find buyers for its bonds. It does not face an inability to finance itself. The risk rather comes from a bill that rises with each debt renewal. Upcoming budgetary choices will need to reassure investors to prevent another rise in this risk premium.